1/6/2012: Irish Manufacturing PMI for May 2012

NCB Manufacturing PMIs for Ireland are out for May, so time to update charts.

Per release: "Operating conditions at Irish manufacturing firms improved again in May as output returned to growth and the expansion in new business was sustained. Increased workloads encouraged companies to take on extra staff, and the rate of job creation was solid during the month. Meanwhile, cost inflation remained elevated amid rising prices for fuel and other oil- related products."

Ok, running with numbers:

• Overall Manufacturing PMI has posted a moderate expansion at 51.2 in May up on 50.1 in April 2012. May reading is still within 1/2 stdevs from zero expansion level of 50, but nonetheless, a strong improvement on April. May reading is below 51.5 in March. 
• 12mo MA remains below 50 at 49.4, but 3mo MA is now above 50 at 50.9, compared to previous 3mo MA of 48.9.
• 3mo MA activity remains well below same period 2011 - 54.5 and below same period 2010 - 53.5.
• 6mo MA is about to cross 50, currently at 49.9.

Per chart above and the snapshot below:

• Output index rose to 51 in May from 48.6 in April, with 12mo MA at 50.1 and 3mo MA at 50.8. Previous period 3mo MA was 48.8. Output activity remains subdued compared to same period 3mo MA in 2011 - 56.4 and 2010 - 57.7. 6mo MA is at 49.8, heading for 50.
• Per release: "Higher new orders led firms to raise production during the month. Output increased slightly, following a reduction in the previous month. Production has risen in three of the past four months."
• New orders index moderated the pace of growth in May from 51.4 in April to 51.1. 12mo MA is now at 49.1 and 6mo MA at 49.7. 3mo MA in May stood at 51.7, against previous 47.6 - representing a solid improvement. However, new orders remain subdued compared to same period 3mo MA in 2011 - 56.0 and 2010 - 55.4.
• Per release: "New business at Irish manufacturing firms increased for a fourth successive month in May, with respondents mainly linking growth to higher new export orders."
• New exports orders also moderated the pace of growth in May from 53.1 in April to 52.9. 12mo MA is now at 51.5 and 6mo MA at 52.1. 3mo MA in May stood at 53.7, against previous 50.5 - representing a solid pick up in growth. However, new orders remain subdued compared to same period 3mo MA in 2011 - 59.0 and 2010 - 59.5.
• Per release: "New business from abroad rose at a solid pace as firms were reportedly able to generate sales from outside the eurozone."

Other sub-indices performed reasonably well with no surprises.

Per release: "A depletion of outstanding business also supported output growth in May, with backlogs decreasing at the sharpest pace since January. Manufacturers raised their employment for the

third month running in May amid increased workloads. The pace at which staff were taken on was solid, and the sharpest since March 2011." More on this once Services data is available.

"The rate of inflation of input prices remained sharp in May, and was only slightly slower than that seen in the previous month. According to respondents, the rise mainly reflected higher costs for fuel and other oil-related products. Strong competition largely prevented firms from passing on increased costs to clients, however, and prices charged were reduced fractionally." As usual, I will update profitability conditions changes once we have Services data, so stay tuned.

Overall, Irish Manufacturing is not exactly booming, but is clearly breaking the overall euro area trends. Robust exports exposures are supporting activity and are currently consistent with a shallow expansion in economic activity in Q2 2012.

7/5/2012: Analysis of April Irish PMIs (1): Core Manufacturing

With both Services and Manufacturing PMI data out last week, time to update some charts. This post will deal with core trends in manufacturing PMIs, following by posts covering core data in Services PMIs, employment trends and profitability trends.

Core PMI in manufacturing slid to 50.1 in April 2012 - level consistent with zero growth - from 51.5 in March. Although nominally, the PMI remained for the second month above 50, both March and April readings were not statistically significantly different from 50. Longer term averages also disappointed: 12mo MA slipped to 49.5 - below 50, nominally, 3mo MA is at 50.4. This compares to same-period 3mo average of 56.1 in 2011 and 51.7 in 2010. So overall PMI activity is at the slowest in 3 years. 6mo MA is down at 49.45 and 9mo MA at 49.3.

New Orders sub-index came in at 51.4 in April, a decline from 52.7 in March. March reading was barely statistically significantly different from 50, with April level of activity sliding below the statistical bound. 12mo MA for sub-indicator is now at 49.3 and 3mo MA through April 2012 at 51.4 compares poorly compared to same period average of 58.1 in 2011 and 53.2 in 2010. 6mo MA is at 49.45 and 9mo MA at 49.07.

New Export Orders sub-index is at 53.1, still above the expansion line of 50 and statistically significantly so, but down from 55.1 in March 2012. 12mo MA is at 52.0 and 3mo MA at 52.6, compared to same period 3mo MA of 59.9 in 2011 and 58.7 in 2010.

Thus, out of all 3 core indices, only one - New Export Orders - is consistent with growth. On the positive side, however, all three indices have deteriorated on March, but remained above 50 in nominal terms.

Chart below plots shorter-range highlight for the above series, plus Output sub-index. Output sub-index slipped to 48.6 in April from 52.8 in March - a sizable swing of 83% of the crisis-period STDEV. A nasty surprise pushed 12mo MA to 50.2 - within a whisker of 50, with 3mo MA at 50.6, compared to 2011 same period 3mo average of 59.1 and 2010 of 55.0.

The trend of flat - on average virtually zero growth - in all four series continues since June 2011.

All other core sub-indices are underperforming as well:

The gap between input and output prices is staying wide, implying continued pressures on profit margins (to be covered in a separate post), while employment outlook improved from 51.2 in March to 52.9 in April.

All core series show flat trend at below 50 since, roughly June 2011.

2/4/2012: Improved Manufacturing PMI - March 2012

Manufacturing PMI for March is out and there are some nicely positive surprises.

First off - we bucked the trend on euro area manufacturing PMIs which signal contraction. Second headline - we bucked the trend within recent months for our own PMI. Third, PMIs are volatile, manufacturing PMI is even more volatile and we have to be careful reading the 'trend'.

Details, then:

• March PMI headline reading is 51.5 - in an expansion territory, but statistically within 1/2 Standard Deviation of 50.0. This marks the first increase above 50.0 reading since October 2011 and the highest reading in headline PMI since May 2011. Per NCB/Markit statement: "Although only slight, the improvement in operating conditions was the first in five months".
• 12mo MA of headline PMI is now at 50.0 - meaning that on average, manufacturing activity stood still over 12 months. 3mo MA is very close to that at 49.8, which is an improvement of sorts of previous 3mo MA of 49.1. 2011 3mo to March average is 56.1 - that was reflective of robust growth reading back then. In 2010, 3mo average to March was 49.9.
• Volatility of the series remains above pre-crisis levels - standard deviation for the series rose from 4.54 for full sample (1998-present) and 4.46 for pre-2008 period to 5.60 since 2008.

More details on the data:

• Output sub0index posted stronger reading than core PMI index, rising to 52.8 in March from 50.4 in February and marking second month of above-50 readings. March level was statistically significant relative to 50.0. 12mo MA is now at 51.1 and 3mo MA at 50.2 against previous 3mo MA of 49.9. These series generally run above the core PMI index, with 3mo through March averages in 2010 of 51.2 and in 2011 at 59.2. The sub-index also has higher volatility than core PMIs with crisis-period stdev at 6.35.
• New orders sub-index also hit statistically significant expansion reading at 52.7 in March up on 50.1 in February. 12mo MA is now at 49.8 and 3mo average at 49.9 against previous 3mo average of 49.0. 
• New Export orders sub-index rose robustly to 55.1 in march from a weak contraction level of 49.7. This is a massive gain, although the sub-index is volatile. NCB analysis suggests that the reason for the rise is due to Irish economy exposure to stronger US economy, offsetting the negative forces from the euro area recession. 12mo MA is now at solid 52.5, 3mo average through March at 51.9 a small rise on 50.2 for 3mo period average through December 2011. These readings, however, are still far behind the reading of 60.4 in 3mo through March 2011 and 57.4 for 3mo through March 2010. Volatility of new exports orders sub-index is one of the highest amongst core sub-indices at 6.97 for crisis period, up on 4.99 in pre-crisis period.

Some other sub-indices:

On the net, majority of other subcomponents continue to show weakness, but all are improving in rates of signalled contraction. Backlogs of work are down again, but at a slower rate. Post-production inventories of finished goods continue to fall, but the rate of fall is moderating. Inputs purchases expanded robustly from 48.7 in February to 53.8 in March in line with growth in orders and exports.

On tow core points of employment and profitability (both will be covered in individual posts once we have Services PMI data as well):

• Profit margins continued to shrink in Manufacturing - compounding months of deterioration, which is bad news for the sector
• Employment sub-index reached back into growth territory at 51.2, for the first time since December 2011. 12mo MA is now at 49.6 and 3mo average is 50.0. Both are an improvement, but overall employment sub-index is not exactly a great predictor of actual jobs creation. In particular, in 2011 3mo average through March stood at 53.2 and there was no jobs creation of any appreciable quantity.

So core conclusion: cautiously, this is good news. But I must stress the point that it is only 'cautiously' so because:

• Core index and sub-indices are volatile, and
• The oerall trend since around June 2011 remains relatively flat and close to statistically identical to flat-line economy at 50.0

5/3/2012: Services & Manufacturing Employment - PMI data for February

In previous posts I have covered new data on Manufacturing PMI and Services PMI. In this post, I will look closer at Employment sub-indices by these two broad sectors.

As before, all original data is courtesy of NCB, with analysis provided by myself. Some of the indices reported are derived by me on the basis of proprietary models and are labeled/identified as such.

Chart above shows core PMIs for Services and Manufacturing, highlighting the following changes:

• Manufacturing PMI moved from 48.3 in January to 49.7 in February, remaining below 50 line, signaling weaker contraction mom. 12mo MA is now at 50.3 and Q1 2012 average running is 49.0 against Q4 2011 average of 49.1.
• Services PMI has improved from contractionary 48.3 in January to expansionary 53.3 in February, with 12mo MA at 51.0 below february reading. Q1 2012 running average is 50.8 and it is almost identical to 50.9 average for Q4 2011.
• Volatility of Manufacturing PMI had risen from the STDEV of 4.48 in 2000-present sample to 5.62 for 2008-present sub-sample (crisis period), while volatility of Services PMI had fallen from 7.75 in 2000-present to 6.60 in 2008-present.

The chart below summarizes Employment sub-indices for Services and Manufacturing PMIs:

• Employment index in Manufacturing has deteriorated from 49.5 (contractionary) in January to 49.3 in February, with 12mo MA now at 49.9, Q1 2012 running average of 49.4 and Q4 2011 average of 48.6.
• Employment index in Manufacturing has become more volatile during the crisis, with STDEV rising from 4.41 for the sample of 2000-present to 5.51 for the crisis-period sample.
• Employment index in Services has improved from contractionary 44.5 in January to still contractionary 47.9 in February, with 12mo MA at 47.7 and Q1 2012 running average of 46.2 against Q4 2011 average of 47.3.
• Employment in Services is less volatile since the crisis on-set, with STDEV of index running at 6.71 for the sample of 2000-present against crisis period STDEV of 5.64.
• Overall, Employment index in Services is virtually as volatile during the crisis period as the Employment index in Manufacturing. However, before the crisis onset, and historically overall, employment was much less volatile in Manufacturing than in Services. This suggests, given strong growth of our exports in Manufacturing compared to Services, that most of our current exports boom is explained not by real economic activity, but by transfer pricing - a conjecture supported by my analysis of the trade data here. Note, that this is also consistent with lower overall employment and lack of jobs creation despite the relatively strong singlas coming from the PMIs in both sectors.

Charts below clearly show that our 'exports-led' recovery is not creating jobs and is instead associated with overall net jobs destruction continuing to rage across the economy.

So what is going on? we can only speculate, but in my view, 


Reasons why our Services PMI growth is not translating into jobs creation are: 
(1) much of growth is due to transfer pricing via IFSC & likes, 
(2) Maj of services exports are not labour intensive (hours worked) but skills intensive (high-end skills generating high value added), 
(3) Domestic services continue to shrink (retail etc), 
(4) Profit margins are very severely strained - so profitability has ben shrinking since end of 2007 every month, implying cuts in employment to raise productivity, 
(5) Many of jobs in services exports are NOT employing domestic workers as lack of skills drives these jobs into international markets. And these are the growth areas, while domestic employment sectors are shrinking. 


Incidentally, this is not new. 


Since the beginning of data series, in Manufacturing, we had 33 months characterized by rising unemployment and rising exports (exports-led jobless recovery) against 43 months of jobs-creating exports-led growth. So there is a 43.4% chance that any recovery in Irish manufacturing will be jobless. This chance is much higher during the current crisis, with 20 monthly episodes of jobless recovery against just 8 jobs-creating recovery episodes.


Similarly, in Services, since the beginning of the data history, we had 31 episodes of jobless recoveries against 32 episodes of jobs-creating exports growth. So probability of 49.2% is associated with seeing jobless recovery if a recovery is exports-driven. Since the beginning of this crisis, there were 26 jobless exports-growth episodes against only 1 month when jobs growth coincided with exports growth.


The above, of course, show exactly how fallacious it is to anticipate exports growth to translate into jobs recovery.

5/3/2012: Weak Manufacturing PMI for February

In the next few posts I will be updating the current data on Irish PMIs. This first post will be focusing on core PMI data for Manufacturing. All original data is courtesy of NCB, with analysis provided by myself. Some of the indices reported are derived by me on the basis of proprietary models and are labeled/identified as such.

Taking from the top:

• Core Manufacturing PMI has posted shallower contraction at 49.7 (statistically insignificantly different from 50.0=no change) in February. This signals compounded contraction on January deeper rate of deterioration (48.3).
• 12mo MA for core PMI is at 50.3 with 3mo MA at 48.9. Previous 3mo period average was 38.4, so there is no consistent break from the shallow negative growth trend so far.
• Same 3mo period in 2011 averaged 54.9 and in 2010 - 48.5. Again, data suggests roughly similar dynamics today as in 2009-2010, not 2010-2011 period.

• New orders sub-index reached marginally above 50 in February at 50.1, marking substantial improvement since January 46.8 reading. 12mo MA is at 50.2 - in effect showing no growth in the last 21 months. 3mo MA remains strongly contractionary at 47.6
• New exports orders posted a deterioration and slipped into negative growth territory at 49.7 in February from 50.9 in January. 
• Output subindex clearly shows the established flat trend that is running since mid-2011. Output rose to 50.4 (statistically indistinguishable from 50) from contractionary 47.3 and is now running ahead of 3mo MA of 48.8, but behind 12mo MA of 51.5.

Chart below shows more recent snapshot of data with clear evidence of flat - zero-growth - trend since mid-2011.

Two charts below detail other components of the Index:

• Backlogs of work slightly improved to slower contraction-signaling 43.8 from 41.1 in January
• Quantity of purchases also improved by posting shallower rate of decline at 48.7 agains 47.1 in January
• Critically, February output prices posted deeper deflation at 47 against 48 in January. Output prices are now staying in deflationary territory since August 2011.
• Input prices inflation shot up in February to 60.5 from already inflationary 58.3.
• The two movements above mean profit margins have shrunk in Manufacturing - although more details on this in later post dedicated to profits margins in both Services and Manufacturing sectors.

Real disappointment comes from Employment sub-index:

• Employment sub-index in Manufacturing has posted slight acceleration in contraction from 49.5 in January to 49.3 in February
• The index is now running below 50 - on average - over 12 months. Last 3 mo MA is 49.8, which is down from same period of 2011 when it stood at 51.8.
• Given the above profitability trend, it is likely that Manufacturing Employment will not be posting any serious growth any time soon.

Next post will update data for Services PMI.

1/12/2011: Manufacturing PMI for Ireland - November

Manufacturing PMI for November has signalled renewed downward pressure in sectoral activity.

Having posted a surprise, EU-wide trend-breaking increase from 47.3 in September to 50.1 in October (a reading above 50 is consistent with expansion, albeit a reading between 50 and roughly speaking 52.5 is statistically insignificantly different from 50), the core Manufacturing PMI fell again into the contraction territory in November, posting 48.5.

More ominously, 3 mo average through November is now 48.6 and 3mo average through August is at 49.2, so last six months on average have posted a contraction in Manufacturing activity. Thus, Manufacturing PMIs are now firmly flashing recession warning signs. A year ago, 3mo average through November 2010 stood at 50.2. 12 mo MA is remaining above 50 at 51.8 due to solid gains achieved in January-April 2011.

Output reading is now also below 50 with November Output measure coming in at 48.3, down from 52.7 in October. 3mo average through November is barel above 50 at 50.3 and 3mo average through August is at 50.5. November 2011 reading is the lowest since January 2010.

Like the main indicator, New Orders sub-index has posted average below 50 readings in 6 months through November. The sub-index is now at 49.7, down from 51.4 in October. New exports orders sub-index remained just below 50 for the third month in a row at 49.9 in November, compared against 49.8 in October. And backlogs of existent orders continued to contract at 44.2 in November - 9th month of straight declines.

Output prices accelerated factory gates deflation at 48.2 in November compared to 49.2 in October - for the fourth consecutive month. Meanwhile input prices index signalled continued strong inflation at 55.2 in November, unchanged from October. This trend is present in the data since January 2010 uninterrupted. Thus profit margins in manufacturing continued to decline at accelerating pace (more on this in a separate blog post once we have PMIs for services as well).

Stocks of purchases declined rapidly at 41.3 in November - deeper contraction than 44.5 registered in October. Meanwhile rate of decline in stocks of finished goods (46.1 against 45.4 in October) has slowed down, suggesting build up of inventories and putting potential pressure on one of components of GDP and GNP down the line.

Employment also posted third consecutive month of declines - November reading is 48.3 against 47.1 in October. 3mo average through November is 47.3 - well below already contractionary 3mo average through August at 49.5. In 2010, 3mo average through November stood at a less sharply contracting 47.9.

Overall, pretty brutal data for Manufacturing.

04/11/2011: October PMIs - risk of recession rising

Continuing with the analysis of the latest PMI figures for October 2011 for Ireland, this post is looking into the relationship between employment, PMIs and exports-led recovery both over historical horizon and the latest performance. The previous two posts dealt with detailed data on Manufacturing (here) and Services (here).

Manufacturing PMI posted a rise from 47.3 to 50.1 between September 2011 and October 2011, moving above 50 reading for the first time in 5 months. However, as explained in previous post this increase does not signal expansion, as 50.1 is statistically insignificant relative to 50. At the same time, employment sub-index for Manufacturing PMI remains in contraction at 47.1 (statistically significantly below 50) for the second month in a row.

Services PMI posted a slight improvement in the rate of growth at 51.5 in October, up from 51.3 in September, but once again, given the volatility in the series, these readings are not statistically different from 50 (no growth) mark. Meanwhile, Employment sub-index of Services PMI remains below water at 46 - same reading for both October and September.

Charts below show two core trends:

The trends are:

• Both manufacturing and Services PMIs are flatlining around 50 mark, signaling stagnation
• Both in Manufacturing and Services, there are no signs of easing in jobs destruction

Consistent with these trends, overall Services sector has moved from the position of relative jobless recovery signalled at the beginning of 2011 to border-line recession and jobs destruction in October. Manufacturing sector has moved from the optimal growth area (jobs creation and recovery) in the beginning of 2011 to a recession in October 2011.

In addition to weaknesses in employment and overall PMIs, October figures show deterioration in exports growth, with Manufacturing New Export Orders sub-index at 49.8 and below 50 for the second month in a row (note that 49.8 is statistically not significant compared to 50) and Services New Export Business sub-index at 50.1 (down from 53.1 in September). Both sub-indices show stagnant exports performance in the sectors. Chart below shows that we are now in a recession (albeit border-line) - vis-a-vis exports-led recovery in Manufacturing and are getting close to a recession in Services.

01/11/2011: Manufacturing PMI for October

NCB Manufacturing PMI for Ireland is out this morning with some surprises to the positive side of things. Let's start from the top:

• Irish manufacturing production rebounded in October with new orders increasing for the time since May. The rebound was extremely shallow with PMI reaching just 50.1 (barely above 50 mark that denotes expansion). PMI reading has improved dramatically, however, rising from 47.3 in September. 12mo average remains above current levels at 52.0, 3mo average is however below at 49.0. Previous 3mo average was 49.9. 2010 average for the 3 months through October was 50.1. 
• It is worth noting that with the historical standard deviation of 4.6 and standard deviation for the crisis period of 5.9, the current expansion reading is really statistically meaningless. 

As chart above further highlights:

• Output expanded strongly to 52.7 in October, up from contractionary reading of 49.8 in September. The latest reading compares favorably against 3 mo average of 51.6 and is statistically significant for the entire history of the series, but is not statistically significant for the crisis period data. 
• New orders posted an expansion of 51.4 up from September contractionary reading of 45.8 - a considerable increase in mom terms, pushing the series well ahead of 3mo average of 48.3, but still below 52.7 12mo average. However, the new reading remains statistically insignificantly different from 50 both in historical terms, in terms of data since January 2000 and in terms of data for the crisis period (since January 2008). The increase in total new orders growth was solid, and the fastest since April.
• New export orders posted a slight slowdown in the rate of contraction moving to 49.8 in October from 49.2 in September. Obviously, both readings are not statistically significant from 50 as new exports sub-index is more volatile than majority of other components of PMIs. However, the new reading is still below 12mo average of 55.2, below 3mo average of 50.8 and below 3mo average through October 2010 of 53.0.
• The surprising factor here is that the overall PMI in manufacturing is now moving in the opposite direction to New Export Orders. According to NCB: "Anecdotal evidence suggested that uncertainty surrounding the eurozone had a negative impact on new business from abroad. Conversely, there were some reports that favourable exchange rate movements had helped to stimulate demand."

Chart above shows that profit margins have continued to shrink in October (more on this later in the week once we have Services PMI data as well). The contraction in profit margins was driven by significant increase in inputs price inflation and continued deterioration in output prices. stock of purchases and stocks of finished goods continued to contract.

Crucially, per chart above, employment sub-index posted another contraction in October at 47.1 against 46.5 in September. The index 12mo average is now at 50.5 and 3mo average through october is 48.2. 3mo average for the period to July 2011 is 49.1 and the current contraction is statistically significant.

So on the net - the slightly positive news on overall PMI and new orders fronts are clearly offset by negative readings on new exports orders, profit margins and employment. These suggest that we might be witnessing a 'dead cat bounce' effect. If the new trend toward cautious growth were to be supported by data, we need couple more data points to see this.